This document discusses the importance of creating and maintaining a budget. It notes that banks may loan more than individuals can afford, so budgeting is necessary to determine spending limits. Maintaining a budget provides financial stability and helps achieve goals. The document then provides tips for creating an effective budget, including tracking spending, prioritizing expenses based on values, and ensuring all household members participate in the budgeting process. Finally, it discusses how lenders evaluate debt-to-income ratios to determine loan eligibility.

2. Introduction
 Banks will often loan you
more than you can really
afford
 Creating a budget will
help you determine how
much you can afford to
borrow
 Maintaining a budget will
help you achieve any
financial goal
2Budgeting

3. Budgeting is Important
With a Budget No Budget
 Reduced Stress
 Better Quality of Life
 Peace of Mind
 Comfort in knowing your
finances are properly
managed
 75% of Americans live
paycheck to paycheck
 Money is the #1 cause of
divorce in America
 Less than 10% of high
school graduates receive
a financial education in
school
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4. What is a budget?
More ideas
 A financial plan
 A list of expenses and income
 A financial road map for the future
 An action plan
 A way to avoid going broke
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5. Why should you have a budget?
Budgets …
 Stop you from overspending
 Help you get out of debt & save money
 Give you peace of mind
 Help you determine what is important to you
 Help you meet your financial goals
 Help your family focus on common goals
 Decrease family conflict
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6. Tips for Creating a Good Budget
 The most important things to remember:
Spend less money than you make.
Maintain savings.
 Other tips:
 Detail, detail, detail
 Make sure your budget tracks all your expenditures
 Remember, a budget is an action plan
 Include a contingency category to cover unexpected
expenses
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7. Track your Spending
 One way to do this is to create an envelope
for each category in your budget
 Put the receipts in the correct envelope at the
end of each day
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8. Spending is About Choices
 If you don’t have a
budget, your latest
whim or emergency
will make the choice
for you
 With a budget, you
prioritize spending so
that your money is
used on what you
value
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9. Lifestyle & Family Decisions
 You will need to make some financial choices
 Most of us don’t have enough money for
everything we want
 Remember that what is right for your family
may be very different from what is right for
other families
 A budget allows your spending to be in line
with your financial goals
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10. Other Considerations
 Do you have elderly parents you need to
consider?
 Do you have college-bound children?
 Do you or family members have disabilities?
 Do you have to pay for …
 Tutoring?
 Athletics?
 Childcare?
 After-school programs?
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11. Expenses that Lenders
Don’t Count
 When lenders decide how much you can
afford to borrow, they don’t include:
 Childcare or after-school care
 Elderly parents
 Tuition expenses
 Disabilities
 Tutoring
 Athletics
 Vacations
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12. Everyone Must Participate in
Household Budgeting
 Who spends money in
your household?
 Partner/Spouse
 Teenager
 Parent
 Other household
members
 Everyone who spends money
needs to be part of this process
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13. Have a Plan
 Your budget is your plan for
the future
 Now you know how to create
a budget and determine an
affordable monthly payment
 Don’t shop for houses or
loans until you have a budget in place and
know what you can afford to pay
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14. How do you qualify for a loan?
The underwriters will look at:
Debt-to-Income Ratios
FICO score & credit history
Adequate collateral for the loan
(down payment)
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15. Debt to Income Ratios
There are two key ratios:
“Front-end” ratio
 What portion of your income is
used for your mortgage payment?
“Back-end” ratio
 What portion of your income is
used for all debt payments?
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16. Calculating “Front-End” Ratio
Front-end example:
 Total monthly mortgage payment = $1,000
 Total monthly gross income = $4,000
$1,000/$4,000= 0.25
Front-end ratio = 25%
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17. Calculating “Back-End” Ratio
17
Back-end Example:
Total monthly loan payments of all kinds
(including mortgage) = $1,500
Total monthly gross income = $4,000
$1,500/$4,000 = .375
Back-end ratio = 37.5%
Borrowing

18. Overall Debt Ratios
According to Example:
 Front-end/Back-end
 25%/37.5%
These ratios are good ones that
should qualify for a loan
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19. Three reasons for YOU to budget
List three ways a budget would help you.
Be as specific as possible.
1. How a budget can help me #1
2. How a budget can help me #2
3. How a budget can help me #3
4. What challenges prevent you from
maintaining a budget?
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Classroom activity

20. Best Way to Create a Budget
You won’t have a good budget until you really
know what you spend your money on.
 Keep track of all spending for 30 days
 Keep all your receipts for 30 days
 Organize your receipts
 Separate into different categories
 Total your expenditures in each category at the end
of the month
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Classroom activity

21. Homebuyer Education
 Teach future
homebuyers about the
home buying process
 Classes offered every
other month (odd
months)
 8 hour HUD-approved
course
 Collaboration with Las
Positas College

22. Financial Literacy
Education
 Group classes offered every
other month (even months)
 Two sessions
 Understanding credit
 Budgeting
 Expanding outreach to
emancipated foster youth and
other at-risk youth and young
adults
 One-on-one counseling to
prepare for homeownership

23. 141 N. Livermore Ave.
Livermore, CA 94550
(925) 373-3130
www.tvhoc.org
“Working to Promote Housing in the Tri-Valley”